AT&T recently announced it will be spinning off Warner Media which will be merging with Discovery to form a media powerhouse company. There has been a lot of talk on social media about what this means for investors. Some are taking the wait and see approach and will hold onto to their shares of AT&T. Many are upset by this deal and are selling off their shares of AT&T. I figured I would take a few minutes to express my thoughts on the current developments.
First, let’s go over the basics of the deal as I understand them. AT&T will be getting rid of its Warner Media assets. This includes assets such as HBO Max, TBS, TNT and CNN. Warner Media will be merging with Discovery. AT&T will receive in the neighborhood of $43 billion. AT&T shareholders will receive shares in the new company formed by the merger of Warner Media and Discovery. AT&T shareholders will get approximately a 71% stake in the new company while Discovery shareholders will get approximately a 29% stake.
This deal will allow AT&T to reduce some of its massive debt. It will allow the company to focus on its core communications business. The downside is that it looks like AT&T will not only lose its Dividend Aristocrat status but will also cut its dividend by close to 50%.
The new media company formed by the merger of Warner Media and Discovery will be a very large media company with all of the combined assets. Warner Media brings assets such as HBO, DC Comics, TNT, CNN and more to the merger. Discovery brings assets from various reality based channels as well as a global footprint. Some speculate that the newly formed company could rival Netflix and Disney+.
This has caused an uproar on social media. From my experience, it seems most are upset that AT&T will be cutting its dividend and are selling off their shares. Some are waiting to see how this all plays out. I have seen a lot of posts about how bad AT&T’s management is. One of the big complaints against AT&T in recent years is that it did a poor job acquiring companies and racking up a massive amount of debt. Since the recent change in leadership, AT&T has been getting rid of some the companies it acquired such as Direct TV and now Warner Media. Now, many are upset at these moves and are criticizing the management of AT&T. Seems like a no win situation for AT&T.
Here are some of my thoughts on the situation. AT&T’s management is trying rectify some of its past mistakes by getting rid of some poor acquisitions. These moves should allow AT&T to reduce debt, focus on its core business and become a stronger company. Cutting the dividend is part of becoming a stronger company. While many shareholders are disappointed in this move, it may turn out to be the right move over time. As a shareholder of AT&T with over 100 shares I plan to hold my shares and see how it plays out. I believe it is possible that AT&T is going to be a stronger company in the long run. While I am disappointed in the upcoming dividend cut like many others, the dividend yield will still be better than average. It could become a growth story if management handles it correctly. I am also excited to get shares of the new media company. It will be interesting to see if the new company can compete on the level of Netflix and Disney+. I think it is possible that having shares of both companies will be better in the long run than if AT&T would have continue along the path that it had been traveling. I could be right or I could be wrong. I am willing to be patient and see it this all plays out over long run.
*Disclaimer – I am not a financial professional. The information shared here should not be considered financial advice. I am just a factory worker sharing my experience as I strive to achieve financial freedom. Before investing or making any financial decision do your own research and due diligence or consider seeking the advice of a financial and/or tax professional.
Here are some of the businesses that I use that I thought some of you might be interested in.
I use the free version on trackyourdividends.com. This is a quick an easy way for me to track my estimated annual income from dividends.
Lolli has a variety of stores that it is affiliated with and offers rewards for shopping at these stores. I use Lolli when I shop on Chewy and I get bitcoin as a reward. Who doesn’t want free bitcoin! If you are interested in Lolli and want to help support the blog here is my referral link: https://www.lolli.com/share/XP7gxDgqC4
I use M1 Finance for my taxable growth account. M1 Finance offers promotions for signing up. At the time of writing this post, the promotion is for $30. These promotions vary from time to time but is usually a $10 bonus. If you are interested M1 Finance and want to support the blog here is my referral link: https://m1.finance/ktIiFeOI5zDr
If you use the referral links listed above I could receive compensation. Please take the time to read the terms and conditions before signing up.
2 thoughts on “AT&T: Dividend Cut, Hold or Sell?”